Military Spouse Residency Relief Act
Military taxes in California
- Service members whose permanent home is outside California remain nonresidents on permanent change of station (PCS) orders to San Diego.
- Under the Military Spouses Residency Relief Act (MSRRA), spouses in San Diego only to be with a service member on PCS orders keep their home state for tax.
- California residents can exclude up to $20,000 of military retirement pay a year for 2025 through 2029, within income limits.
The Franchise Tax Board (FTB) defines domicile as the one place where a person keeps a true, fixed and permanent home and intends to return to. FTB generally treats a service member as a resident of the state they entered the military from.
Does California tax military pay?
California taxes military pay only for California-domiciled members not stationed outside the state on PCS orders.
| Situation | Military pay | California return |
|---|---|---|
| California domicile, stationed at Naval Base San Diego | Taxed | Form 540 |
| California domicile, PCS orders outside California | Not taxed while away | Form 540NR for California income |
| Other home state, stationed at Camp Pendleton | Not taxed | Form 540NR for California income |
FTB still taxes a nonresident member's California income, such as off-base wages or an Oceanside rental.
Spouse wages under the Military Spouse Residency Relief Act
California exempts a civilian spouse's wages for work in the state when:
- The spouse is in California only to be with the service member.
- The service member has PCS orders to California.
- The spouse keeps a domicile outside California.
To claim the exemption, the spouse:
- Checks the Line 4 box on Form DE 4, the Employment Development Department withholding certificate, and gives it to the employer
- Keeps proof of eligibility, since California may ask for it
Under the Veterans Auto and Education Improvement Act, enacted January 5, 2023, a service member and spouse can choose their state of residence for tax from:
- The service member's domicile
- The spouse's domicile
- The service member's permanent duty station
An Ohio spouse of a Texas Marine at MCAS Miramar can choose Texas.
A couple making an election writes "MSRRA/VAEIA" at the top of the California return in blue ink, or follows the tax software's instructions.
Is military retirement taxable in California?
California taxes residents' military retirement pay and exempts nonresidents. From 2025, FTB lets residents exclude part of it:
- Joint filers share one $20,000 military retirement exclusion cap.
- Joint filers and surviving spouses need federal adjusted gross income (AGI) of $250,000 or less; other filers, $125,000.
- Surviving spouses can exclude Survivor Benefit Plan annuity payments too.
A single retiree in Chula Vista figures the 2025 exclusion this way:
| Item | Amount |
|---|---|
| Military pension | $36,000 |
| Federal AGI | $90,000 |
| Exclusion | $20,000 |
| Pension taxed by California | $16,000 |
Joint or separate returns for military couples
Military couples who file a joint federal return can file joint or separate California returns:
- FTB suggests figuring the tax both ways
- Couples filing jointly use Form 540NR when either spouse is a nonresident or part-year resident
- On Form 540NR, FTB counts a spouse's MSRRA-exempt wages in total income to set the tax rate, without taxing them
A CPA can compare the two returns and the domicile election before filing. Start with how to choose a CPA.